Germany August flash manufacturing PMI 42.1 vs 43.5 expected

• Prior 43.2
• Services PMI 51.4 vs 52.3 expected
• Prior 52.5
• Composite PMI 48.5 vs 49.2 expected
• Prior 49.1

German business activity continues to contract in August and the services sector is also starting to weaken further in Q3. The contrast highlights how much of the boost in France owes to the Paris Olympics. In any case, this just reaffirms market expectations for a rate cut by the ECB next month.

EUR/USD got a brief spike to 1.1165 after the French data but is now trading to fresh lows on the day at 1.1132 after the German data.

HCOB notes that:

“These numbers are a real mess. The recession in Germany’s manufacturing sector deepened in August, with no recovery
in sight. In fact, new orders took a sharper dive than last month, mainly due to a significant drop in foreign demand,
signalling more trouble ahead. Given this, it’s hardly surprising that companies are ramping up staff cuts and slashing
inventories of inputs even more aggressively than before.

“The struggles in manufacturing are starting to spill over into the otherwise steady services sector. For the third month in a
row, services activity growth has slowed down. New business is barely growing, and backlogs declined once again. The
export side of services, including tourism, isn’t offering much support either, shrinking at an even faster rate than in July.

“The anticipated recovery in the second half of the year is failing to take shape. There were good reasons to be hopeful —
lower inflation and higher wages seemed like the perfect recipe for increased consumption. Plus, global industry had started
to bounce back, something Germany typically benefits from. But it appears that uncertainty around economic policy has put
a damper on consumer spending, while the global manufacturing upswing turned sour before German companies could feel
the boost. Instead, the odds of a second straight quarter of negative growth have gone up, meaning we might be back to
talking about a recession in Germany soon.

“After such a prolonged slump that began in mid-2022, the renewed optimism among manufacturers seen earlier this year is
fading fast. Manufacturers’ expectations towards future output have now been below the long-term average for two
consecutive months, mirroring the continuous decline in outstanding orders, which have been shrinking for an uninterrupted
27 months. The anticipated interest rate cuts by the ECB, expected by most analysts, might lift spirits a little, but it’s clear
that the overall mood remains poor.”

This article was written by Justin Low at www.forexlive.com.